1. Field of the Invention
The present invention relates generally to the field of electronic order routing that allows a user to select, order, route, confirm, and track orders for multiple financial instruments among multiple buyers and sellers (e.g., fund managers, brokers, custodians, etc.). More specifically, the present invention provides end-to-end, straight-through-transaction processing methods and systems for multiple financial instruments combining order routing, execution, settlement, foreign exchange, and custodial services to multiple parties to a financial transaction.
2. Background
Historically, many fund managers, for example, in Europe, sell mutual funds to and distribute those funds through brokers. As used herein, the term “fund managers” is used to represent mutual fund managers, executing brokers, fund house agents, transfer agents, and other financial service providers with a retail customer base. As used herein, the term “brokers” is used to represent mutual fund brokers, discount brokers, retail brokers, financial institutions, and other intermediaries that act as agents/brokers on behalf of retail clients. A broker may deal with many fund managers, and a fund manager may deal with many brokers. Currently, each separate broker makes up its own template for sending out orders, and they get back many different sorts of templates from the fund manager in terms of what the confirmation information looks like. That situation makes orders and confirmations difficult to interpret, and often results in mistakes. The situation is exacerbated when the broker and the fund manager are located in different countries, and, therefore, dealing in different languages and currencies.
Lacking efficient access to foreign markets, brokers attempting to procure financial products generally employ processes that are highly manual with significant risk of errors and risk of orders getting lost. For example, in order to fill a cross-border equity or a fixed income order, a broker must first establish a relationship with an fund manager in the desired market. After receiving an order, the broker transcribes the order information collected from its call center, customer fax, or web site onto an order ticket. The order ticket will then need to be routed to a fund manager in the foreign market for execution. The system used for the order routing may vary by fund manager and market and many times is simply transmitted as a fax. The broker then receives a notice of execution (again, most likely a fax) that needs to be matched back to the original order. The instructions associated with the trade are subsequently forwarded to the broker's clearing agent and custodian. Finally, the broker reconciles its custodian positions with its retail accounting system which is predominately a manual process. The retail accounting system must be able to handle multiple currencies and the broker must have a process in place for settling the trade in the foreign currency. This process quickly becomes unwieldy as retail volumes expand.
As another example, in order to fulfill an order for cross-border managed funds, a broker first establishes a relationship with a foreign fund manager. On a daily basis, the broker collects orders for particular funds throughout the day by way of its call center, customer fax, or web site, and sends a consolidated order for each fund to the fund house. The next day the broker receives confirmations from the fund houses that are processed against the original orders. Brokers then settle the transactions on behalf of their customers, keeping track of varying settlement instructions by currency by fund manager. Additionally, the broker ensures fund share registries have been properly updated, confirmations of which may be received days later by post, and the broker reconciles statements received from the fund managers to its retail accounting records.
As illustrated in the above illustrative examples, the communication between the broker and the fund manager is often done by fax, telephone, or non-standardized means, which translates into much re-keying, possible data entry errors, lack of standardization in information received, and missing or lost information. While one or more fund mangers have tried to automate some aspects of their own systems from time to time, such aspects are limited to communications between a particular broker and a particular fund manager and do not relate to communications between all brokers and all fund managers.
Another problem is that despite the globalization of investment on an institutional level, brokers remain limited in their ability to invest outside of their home country because the process of ordering and paying for “foreign” investment products is filled with complexities and because transaction costs are prohibitive. The majority of the components making up the costs involved in cross-border trading is inherent on there simply being a transaction and does not vary based on the size of the transaction. At the institutional level, this cost is generally small relative to the overall trade value, but can become significant quickly for a retail trade. Such trade-based transaction costs include order routing and settlement messaging. Furthermore, while execution commissions are generally value-based, steep minimums can also contribute to a disproportionate cost for a retail-size order.
In addition to the aforementioned problems, brokers may have difficulty in obtaining other types of information about financial instruments. For example, brokers face difficulties in pricing the security quickly and easily in terms investors understand (e.g., an investor's local currency). In addition, brokers find it difficult to obtain and disseminate current fund prospectuses in the appropriate language. Further, brokers find it difficult to locate the appropriate security identifiers required by the fund managers in order to quote and execute a trade based on security descriptions provided by the broker's investors.
Thus, a need exists for methods and systems for remotely accessing a secure communications network that provides fund managers and brokers a single point of entry to electronically order and confirm various types of financial instruments, as well as to provide additional flexibility and functionality in managing these orders. A need also exists for electronic order routing methods and systems that afford basic checks on order information and that prevent the submission of duplicate information. There is a further need for flexible electronic order routing methods and systems that are able to: (1) monitor the real-time status of a financial order at various stages; (2) accommodate additional financial instruments and additional users as the system expands; (3) facilitate lower transaction and processing costs; (4) provide multilingual capabilities, settlement currencies, and other identifiers necessary to quote and execute an order for a financial instrument; and (5) minimize the manual entry and re-keying of information into multiple formats and templates used by brokers and fund managers.